Concerns over token dilution due to its vast supply and claims of market manipulation are overshadowing Worldcoin as it attempts to scan the irises of billions of people. The controversial cryptocurrency project, Worldcoin, is facing fresh scrutiny amid allegations of insider trading and market manipulation. An on-chain analyst has described it as “the biggest scam token of the bull run.”

According to DeFi Squared, just 2.7% of WLD tokens are currently in circulation. Despite being the 103rd-largest cryptocurrency with a valuation of $648 million, its fully diluted market cap stands at a staggering $22.4 billion. This reflects that out of a total supply of 10 billion WLD tokens, only 288.9 million are available in the marketplace now. As noted by Into The Block, this is particularly concerning for current investors:

If Token A is priced at $1 but only 10% of its total supply is circulating, the market capitalization is based solely on that circulating supply. If the remaining 90% of the tokens are introduced into circulation, the overall value must increase significantly to maintain the $1 price per token. In essence, as more tokens enter circulation, the value of each token can get diluted.

The concept underpinning Worldcoin’s tokenomics is understandable but raises some concerns. Anyone globally can register to have their irises scanned and, in return, receive a digital identity and some free WLD tokens. Latest estimates suggest that more than six million people worldwide have signed up, out of a global population of 8.1 billion. This helps explain why so much crypto remains unclaimed.

However, DeFi Squared’s concerns focus on insider unlocks. It is alleged that the Worldcoin team is “controlling the price to still carry a $30 billion fully diluted valuation.” It’s claimed that 100 million tokens were allocated to market makers, with an industry practice of allocating supply to create favorable price conditions.

The analyst further stated that “the majority of the ecosystem purely exists for VCs to dump,” with good news stories coinciding with token unlocks. This allegedly props up a token price that should be lower. One such piece of news related to Worldcoin developer Tools for Humanity indicated that 80% of the tokens held by its team members and investors would unlock over a longer timeframe, addressing the dilution issue.

DeFi Squared concluded by stating their intention to be “short WLD over the months following the start of unlocks.” A spokesperson for the project denied these allegations and emphasized that the Worldcoin Foundation and Tools for Humanity take any allegations of insider trading seriously and would not tolerate such activity.

Regulatory Concerns

A number of countries have permanently or temporarily banned Worldcoin due to data protection concerns. Regulators argue that users are not provided with detailed information about how their biometric data will be processed, there’s no mechanism to revoke consent, and the technology could harm children. As Portugal’s Data Protection Authority noted:

Minors are particularly vulnerable and are subject to special protection by European and national legislation, as they may be less aware of the risks, consequences, and guarantees of the processing of their personal data and their rights.

Spearheaded by Sam Altman, who also founded OpenAI, Worldcoin has missed user acquisition targets, including an ambitious goal of registering one billion people by 2023. Consumers in major economies like China, India, and the U.S. are forbidden from accessing orbs and, in some cases, even owning WLD tokens.

It remains uncertain whether these setbacks for Worldcoin will be temporary and whether the technology will prevail as the need for digital identities grows. Meanwhile, regulators are taking a cautious approach, concerned about the potential future implications.

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